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View SlideshowRequest to buy this photoJonathan Quilter | DISPATCH PHOTOSMike Tomaso runs Liberty Coins in Delaware. He sued the state over actions taken against him and won. The state is appealing, and shop owners are anxious about the outcome of the court case.

Jewelry, coin and “we buy gold” shops are awaiting the outcome of litigation that could affect
regulation of their industry. Worries about fines and restrictions already have hurt some stores’
bottom lines.

Laws governing precious-metals dealers have been around for three decades. They require
licensing and include rules meant to control unethical practices such as receiving stolen goods and
lowball pricing by transient dealers.

But enforcement was lax, and few dealers complied with or even knew about the laws, said Ed
Karn, owner of Allen’s Coin Shop in Westerville, who has been involved in the family business since
1981.

“I had never heard of it being enforced until 2011,” he said.

Since 2011, 134 administrative enforcement cases have been opened against unlicensed dealers.
That compares with 64 cases between 2008 and 2010, according to Ohio Department of Commerce
records.

The number of licensed dealers also increased sharply in that period, from 41 in June 2009 to
236 in January 2012.

Fines sometimes exceeded $100,000.

The shops responded by hiring attorneys and lowering their profiles by halting advertising and
taking “we buy gold” signs from their windows. As a result, they lost business during a period when
precious-metals prices were soaring.

Liberty Coins in Delaware faced criminal sanctions and a $10,000 fine. Instead, it sued the
state in federal court over the action taken against it and won. And since late last year,
enforcement of licensing requirements has been suspended statewide.

The state has appealed the federal judge’s ruling. Oral arguments were heard last month in the
6th U.S. Circuit Court of Appeals, based in Cincinnati.

Since then, “there are a lot of shop owners that are out there holding their breath. They don’t
want to get a knock on their door,” Karn said.

Attorney Maurice Thompson thinks the crackdown that began in 2011 was initiated to help balance
Ohio’s budget. With record-high gold prices, dealers were busy.

“I just suspect that there was a renewed interest in enforcement, kind of checking the couch
cushions to see what you can get,” he said.

Thompson’s nonprofit organization, the 1851 Center for Constitutional Law, which represents
Liberty Coins, argued that Ohio’s Precious Metals Dealers Act violates the First Amendment’s
free-speech protection by targeting only shops that advertise or “hold themselves out to the public
as willing to purchase” precious metals. The law also violates due-process rights by levying large
and arbitrary fines, his group alleged.

“This was a great example of an executive-branch agency kind of run amok,” said Thompson. “It
would fine them based on the size of their business and how successful that it was. It was almost
like extortion.”

Commerce Department spokesman Brian Hoyt said he could not comment on pending legal matters.

Thompson argued that Liberty “exists in a state of paralysis, subject to unlawful criminal
sanction and civil fine if it advertises without a license, and subject to meeting vague standards
and enduring warrantless searches and seizures if it obtains a license.”

“It hurt pretty badly,” said Mike Tomaso, Liberty’s owner. As much as half of his sales were in
precious metals. “My finances are pretty vulnerable right now.”

Worthington Jewelers was fined $150,000 last year. The company said it didn’t know it needed to
be licensed. It agreed to pay the state about $12,000 and become licensed.

“We felt we did nothing wrong,” said Cheryl Claypoole, marketing manager. “Since we’ve become
licensed, we’re now taking all the steps to comply with the law.”

The law requires detailed record-keeping, regular police contact and spot reviews of
records.

Tomaso said he works daily with local police. His shop warns that “thieves and criminals will go
to jail if you sell here.”

And a bill was introduced in the Ohio House of Representatives to extend the time — from five
days to 15 — that dealers must hold onto items before selling or altering them; the goal is to ease
the recovery of stolen items.

Tomaso said he’ll continue to keep an eye out for criminals. But he also needs to make a
living.